SNAPSHOT

On 3 April 2013, the High Court of Australia handed down its
decision in Hunt
& Hunt Lawyers v Mitchell Morgan Nominees Pty
Ltd1 . The decision related to an appeal by
Hunt & Hunt Lawyers (Hunt & Hunt) from the judgment of the
New South Wales Court of Appeal in Mitchell Morgan Nominees Pty
Ltd & Anor v Vella & Ors [2011] NSWCA 390.

A key issue in the judgment was the interpretation of several
key proportionate liability provisions in the Civil Liability
Act 2002 (NSW) (CLA) and equivalent provisions in other
Australian jurisdictions.

To determine whether Hunt & Hunt was a concurrent wrongdoer,
the court had regard to two questions:

What was the loss which was the subject of the claim (the
starting point for this analysis being identification of the
interest infringed by the negligent act)?

Secondly, whether there was a person, other than Hunt &
Hunt, whose act(s) or omission(s) also caused the loss or
damage.

By a narrow 3:2 majority, the High Court overturned the decision
of the New South Wales Court of Appeal and reinstated the primary
judge's conclusion apportioning loss between the concurrent
wrongdoers. The practical effect was that Hunt & Hunt (a firm
of lawyers which negligently prepared the mortgage documentation)
was held to be a concurrent wrongdoer together with each of the two
"fraudsters" in the case. Therefore, Hunt & Hunt was
held to be responsible for only 12.5% of the loss and not 100%
(which would be the case if the proportionate liability provisions
under the CLA did not to apply).

In a majority judgment, the High Court has taken a broad
approach to the interpretation of what constitutes a
"concurrent wrongdoer" for the purpose of proportionate
liability provisions under the CLA. Whilst specific to its facts,
the decision should nonetheless provide some comfort to those
seeking to rely on proportionate liability regimes in
Australia.

This decision focuses attention upon the proper identification
of the "damage or loss" as the harm to a plaintiff's
economic interest rather than the underlying potential myriad of
causes of the "damage or loss." This distinction is
welcome news to defendants who had been subjected to an overly
technical analysis of underlying facts and narrow characterisation
of "loss or damage" under the Court of Appeal's
reasoning.

The High Court's decision gives effect to the purpose of
Part 4 of the CLA to give effect to a legislative policy that, in
relation to certain claims such as those for economic loss or
property damage, a defendant should be liable only to the extent of
his or her responsibility.

BACKGROUND

Facts

Allessio Vella and Angelo Caradonna were involved in a joint
venture relating to a boxing event. As a result of this
relationship, Mr Caradonna fraudulently obtained possession of
certificates of title to properties owned by Mr Vella. Unbeknownst
to Mr Vella yet with the assistance of Mr Caradonna's
solicitor, Lorenzo Flammia, Mr Caradonna applied for mortgage
finance in Mr Vella's name to, amongst others, Mitchell Morgan
Nominees Pty Ltd (Mitchell Morgan).

Mr Flammia made misrepresentations to Mitchell Morgan's
solicitors, Hunt & Hunt, that he had witnessed the relevant
documents provided in support of the mortgage application. The
mortgage was approved and registered. Mitchell Morgan paid over $1
million into Mr Caradonna and Mr Vella's joint account. Mr
Caradonna then withdrew these funds, which were not repaid.

Although the mortgage was duly registered, it was worded (by
Hunt & Hunt) so as to only secure money payable by Mr Vella to
Mitchell Morgan.

At first instance

At first instance, in Vella v Permanent Mortgages Pty
Ltd [2008] NSWSC 505, Young CJ in Eq of the Supreme Court of
New South Wales held that Hunt & Hunt was a concurrent
wrongdoer together with Mr Caradonna and Mr Flammia (Fraudsters)
for the purposes of Part 4 of the CLA. Young CJ in Eq assessed Hunt
and Hunt's responsibility at 12.5%, with the fraudsters being
responsible for 87.5% (composed of 72.5% and 15% respectively).

The New South Wales Court of Appeal

In Mitchell Morgan Nominees Pty Ltd & Anor v Vella &
Ors [2011] NSWCA 390, the New South Wales Court of Appeal
overturned the initial decision on the basis that the Fraudsters
did not cause the same loss as Hunt & Hunt, as
required by the relevant provisions of the CLA.

In reaching this decision, the Court of Appeal found that the
damage caused by Mr Caradonna and Mr Flammia comprised of Mitchell
Morgan advancing the loan funds when it would not otherwise have
done so; whereas the damage caused by Hunt & Hunt's
negligence was that Mitchell Morgan did not have the benefit of
security for the money paid out.

THE HIGH COURT APPEAL

A primary focus of the appeal was whether the Fraudsters were
concurrent wrongdoers in Mitchell Morgan's claim against Hunt
& Hunt. The answer to that question lies in the proper
identification of Mitchell Morgan's loss or damage.

A key consideration in the appeal was the interpretation of
section 34(2) of the CLA, which defines a "concurrent
wrongdoer" to be "one of two or more persons whose act(s)
or omission(s) caused, independently of each other or jointly, the
damage or loss that is the subject of the claim." Whether Hunt
& Hunt was a concurrent wrongdoer would ultimately determine
whether it would shoulder responsibility for 100% of Mitchell
Morgan's loss, or only its "proportionate" share of
12.5%.

It was not disputed by the parties that Mitchell Morgan's
claim against Hunt & Hunt was an "apportionable
claim" within the meaning of section 34(1)(a) of the CLA.

The majority judgment: French CJ, Hayne and Kieffel
JJ

The majority judgment addressed the history of and the
background to the implementation of the proportionate liability
provisions found in Part 4 of the CLA (and equivalents in other
Australian jurisdictions). By way of background, the court referred
to the Second Reading Speech of the amendments to the CLA, which
provided that the amendments were directed towards "not only
problems regarding insurance" but also "to defining the
limits which should be placed on personal responsibility" - a
notion which is a strong theme of the judgment.2

The CLA's proportionate liability provisions represent a
departure from the liability regime for negligence at common law
and shifts the insolvency risk to the plaintiff. The insolvency
risk is particularly important in a case such as the present -
where the lion's share of responsibility was found to rest with
the Fraudsters (against whom prospects of recovery are often
uncertain).

To determine whether Hunt & Hunt was a concurrent wrongdoer,
the court had regard to two questions. Firstly, what was the loss
which was the subject of the claim. Secondly, whether there was a
person, other than the Hunt & Hunt, whose act(s) or omission(s)
also caused the loss or damage.3 These two questions are
addressed below.

Loss or damage the subject of the claim

The term "damage" is not defined in the CLA, albeit it
is included in the definition of "harm" in section 5 of
the CLA. This was consistent with Hunt & Hunt's submissions
that it was appropriate to equate damage with the term
"harm."

With respect to the words "the damage or loss that is the
subject of the claim" the majority referred to and distanced
itself from the approach taken by the Victorian Supreme Court in
St George Bank Limited v Quinerts Pty Ltd (2009) 25 VR 666
in which the court held that for the purposes of identifying
concurrent wrongdoers, the damage or loss caused must be the
"same damage". The High Court majority took care to
distinguish "damage or loss" for the purposes of the
proportionate liability provisions and "damages" which a
plaintiff claims by way of compensation. In the context of economic
loss, the majority observed that loss or damage "can be
understood as the harm suffered to a plaintiff's economic
interests".4

Sensibly in our view, the majority also noted that in order to
determine the loss or damage suffered, you must start by
identifying the interest infringed by the negligent act (as per
Gaudron J in Hawkins v Clayton (1988) 164 CLR 539 at 601).
Such a determination is necessary in order to properly understand
the harm suffered, and what acts or omissions may have caused the
loss or damage.5

Mitchell Morgan's interest in this case (or that the harm it
had suffered) was its inability to recover the loan funds advanced.
Similarly, the loss or damage for the purposes of section 34(2) of
the CLA was also Mitchell Morgan's inability to recover the
loan funds. In making this assessment, the court referred to and
endorsed Gaudron J's judgment in Kenny & Good Pty Ltd v
MGICA Ltd (1999) 199 CLR 413 at 424, in which the plaintiff
lender's interest was similarly identified as its inability to
recover the loan funds advanced.6

The High Court also distanced itself from the proposition in
St George Bank Limited v Quinerts Pty Ltd (2009) 25 VR 666
that there is "some requirement that one wrongdoer contribute
to the wrongful actions of the other wrongdoer in order that they
cause the same damage." The majority held that there is no
such requirement in the CLA's proportionate liability
provisions. In doing so, the court appears to have embraced a more
liberal interpretation as to the meaning of loss and damage in the
context of Part 4 of the CLA.

"Courts today usually recognise that there may be
wrongdoers whose acts or omissions occur successively rather than
simultaneously, and who may be liable for the same damage, even
though one may be liable for only part of the damage for which the
other is liable."

The majority further held that "the relevant enquiry is
whether the particular contravention was a cause, in the sense that
it materially contributed to the loss."7

It was clear from the judgment at first instance that Hunt &
Hunt was a wrongdoer which was responsible, or had contributed to
Mitchell Morgan's inability to recover the loan funds that it
had advanced. The next question was whether the Fraudsters'
acts, independently of Hunt & Hunt, also caused that damage (ie
the inability to recover the loan funds advanced). Whilst not
defined in the CLA, the majority observed that for practical
purposes "caused" could be taken to mean "the legal
liability of a wrongdoer to the plaintiff".

The court then focused its attention on the ineffectiveness of
the mortgage as security against the (security) property. The
majority endorsed the approach taken by Hunt & Hunt in its
submissions, namely that the mortgage was ineffective for two
reasons:

The loan agreement was void (for which the Fraudsters were
responsible).

The mortgage instrument was inappropriately drafted (for which
Hunt & Hunt was responsible).

The majority approach held that both of these causes contributed
to Mitchell Morgan's inability to recover the loan funds it had
advanced, and accordingly that Hunt & Hunt and the Fraudsters
were concurrent wrongdoers. Given that it was clear that the
Fraudsters' conduct had induced Mitchell Morgan to enter into
the transaction, it was held to be entirely foreseeable that a
mortgage being entered into would follow. Importantly, the court
clarified that for the purposes of proportionate liability, there
is no requirement as such that the "actions of one independent
concurrent wrongdoer contribute to the negligence of
another"8 . Instead, the majority held that the key
question is "whether each of them, separately, materially
contributed to the loss or damage suffered".9
Importantly, this emphasises the distinction between the wrongdoers
contributing to the loss as opposed to wrongdoers contributing to
each other's respective negligence.

The minority judgment: Bell & Gageler
JJ

The minority concluded that if the proportionate liability
provisions were interpreted in the way for which Hunt and Hunt
contended in the circumstances of this case, the impact of
proportionate liability would be to create a regime where rather
than only transferring to the innocent party some of the risk that
a wrongdoer may be impecunious, insolvent or untraceable, it would
transfer some or all of the very risk against which it was the duty
of Hunt & Hunt to protect Mitchell Morgan. It was this
alteration of rights and responsibilities which the minority did
not agree was the proper construction of the regime.

Interest - sting in the tail

The Court of Appeal held that Hunt & Hunt should pay
interest at the rates specified in the loan agreement - the rate
charged under the mortgage was 78% per annum, reduced to 54% for
prompt payment. The Court of Appeal reasoned that Hunt & Hunt
had prepared the loan agreement and mortgage and was fully aware of
its terms. Hunt & Hunt sought special leave to appeal this
finding, however the High Court could not identify any error in the
reasoning of the Court of Appeal. The loan was for a little over $1
million. Hunt & Hunt's relatively modest one-eighth of that
amount is massively increased by the interest accruing over seven
years.

CONCLUSIONS

The decision provides much needed guidance to those seeking to
rely on proportionate liability protections throughout Australia.
Importantly, the High Court has articulated a framework for
determining whether a defendant is a concurrent wrongdoer for the
purposes of Part 4 of CLA (and in other proportionate liability
regimes).

The majority of the High Court held that in addressing questions
of loss and damage, the necessary starting point is identifying the
interest which has been infringed by the negligent act - in this
case, the inability of Mitchell Morgan to recover the loan funds
which had been advanced.

Once the interest has been identified, it is then necessary to
consider the nature of the loss which was the subject of the claim,
and then, whether there are any other additional people whose acts
or omissions caused the loss or damage. In doing so, the High Court
has provided useful and practical guidance as to the applicability
of the proportionate liability scheme.

Importantly, the High Court has also given weight to the purpose
and intent of the proportionate liability scheme and referred to
placing limits on personal responsibility. The decision is a
pleasing result for insurers, with the court appearing to
acknowledge that whilst professional people are often insured
against liability to clients, they often end up the sole target of
legal action when losses are suffered, despite the involvement of
others .10

This publication is intended as a general overview and
discussion of the subjects dealt with. It is not intended to be,
and should not used as, a substitute for taking legal advice in any
specific situation. DLA Piper Australia will accept no
responsibility for any actions taken or not taken on the basis of
this publication.

DLA Piper Australia is part of DLA Piper, a global law firm,
operating through various separate and distinct legal entities. For
further information, please refer to www.dlapiper.com

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